Investors seeking income from dividend stocks should carefully consider the yield offered. While the average yield in the S&P 500 is 1.56%, some stocks offer double or even triple that amount. The goal is to find reliable blue-chip companies that pay above-average dividends quarterly.
Of course, hundreds of such companies are tempting the average investor. Thus, finding just a handful, or even three such dividend stocks isn’t an easy exercise to accomplish.
However, factoring in defensive characteristics, strong brands and product pipelines, and robust long-term growth prospects, these three dividend stocks clearly shine. Here’s the reasoning behind choosing these three stocks for a passive income portfolio.
Coca-Cola (KO)
Coca-Cola (NYSE:KO) may not be as exciting as many tech stocks, but it has delivered consistent returns with an average of 7.83% over the past decade. This steady growth can double the value of an investment ever ten years. And given the company’s strong core business model and global nature of its brand, the next few decades won’t be any different than the last.
Notably, unlike volatile trendy stocks, Coca-Cola offers stability. Additionally, the stock provides a reliable dividend that boosts overall returns. Thus, for those seeking meaningful total returns over the long-haul, this is one of my top picks (it’s also one of my top portfolio holdings for this reason).
Coke’s dividend growth has remained relatively consistent since 1963, offering income investors peace of mind (especially in times of inflation). With a low Beta of 0.55, Coca-Cola acts as a hedge against market volatility. Despite inflationary pressures, the company continues to exhibit steady growth, surpassing historical profitability averages. Coca-Cola is also expanding into the alcoholic beverages sector through strategic acquisitions and product introductions, making a notable impact in the premium spirits market.
AbbVie (ABBV)
AbbVie (NYSE:ABBV) stands out among pharmaceutical stocks for its strong dividend. With a yield of 4.3%, the company pays a $1.48 per share dividend. Despite recent declines due to generic drug competition, this presents a buying opportunity for long-term investors who value the stock’s regular quarterly payment.
The loss of patent exclusivity for Humira has impacted ABBV stock, leading to concerns about future sales and earnings. Additionally, reports of executive stock selling have caused some investors to be cautious. However, these events have created a buying opportunity for those interested in undervalued pharmaceutical stocks.
Moreover, AbbVie’s acquisition of Allergan has given it control over Botox, a popular anti-aging treatment. With millennials and Gen Z increasingly focused on appearance and influenced by social media, the demand for Botox is expected to rise as it did with Gen X. Along with its strong pipeline of upcoming drugs, AbbVie has a portfolio that provides long-term investors with a positive outlook for continued income growth and stability, something that’s hard to come by in the biotech sector.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) is a top choice for dividend investors due to its high-margin pharmaceuticals and focus on drug discovery. The company recently spun off its consumer health products division, allowing it to concentrate on its core business. Although Kenvue (NYSE:KVUE) is now a separate entity, Johnson & Johnson still holds a majority ownership stake.
The company also experienced a significant correction earlier this year, but has since stabilized. Investors remain uncertain despite the company’s consistent track record and an impressive dividend yield of around 3%. J&J has had a history of raising dividends for 61 consecutive years, recently surpassing earnings expectations while raising its full-year outlook. With a relatively low price-earnings ratio of 15 times, J&J shares present an attractive investment opportunity.
JNJ stock offers stability and long-term value to investors, especially when compared to riskier growth stocks. While growth stocks may experience significant rallies, blue-chip companies like JNJ provide better risk-adjusted returns over time. Investors can benefit from rebalancing their portfolio by taking profits from growth stocks and investing in stable consumer staples like JNJ for a more balanced and secure investment strategy.
On the date of publication, Chris MacDonald has a LONG position in KO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
